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November 12, 2018

As the close of the calendar year quickly approaches, Chief Financial Officers (CFOs), controllers and valuation teams are holding preliminary discussions with auditors and making year-end preparations for the audit. Meanwhile, the U.S. Securities and Exchange Commission (SEC) continues to focus on the valuation of structured products and other complex securities. Over the last 12 months, the SEC has had a notable focus on complex securities sold to retail investors and how closely funds are following their own policies and procedures.

Valuation of collateralized loan obligations (CLOs) and the accounting policies and procedures surrounding them has evolved over the last several years. Over that same time horizon, the CLO market has boomed with the easing of risk retention, forcing those involved with valuation to achieve a deeper understanding of these structures and put firm valuation policies in place. This begs the question: What should you do and what policies should you put in place if you find that your fund has started investing in structured products, such as CLOs?

An emerging best practice includes a portfolio level analysis and deep dives prior to year-end on your most risky and material assets. In this piece, we share our insights on the state of CLOs and provide our view on valuation best practices for performing valuation in the weeks and months leading up to year-end audits.

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